Defense Minister Amir Peretz told U.S. Secretary of State Condoleezza Rice on Thursday that it is in Israel's security interests to make allowances to the Palestinians on humanitarian grounds.

He said, however that the key to accelerating negotiations was the release of abducted Israel Defense Forces soldier Gilad Shalit, who was snatched by Hamas-linked militants in June.

Peretz was responding to a request by Rice for Israel to ease restrictions at Gaza Strip border crossings. The two agreed that Israel would install X-ray machines at Israel-Gaza border crossings in order to ease the flow of commercial goods in and out of the Strip.

Meanwhile, Rice told Foreign Minister Tzipi Livni on Thursday morning meeting that the economic boycott on the Hamas-led Palestinian government is effective and the international community will continue to maintain the boycott.

The West suspended aid to the Palestinians in the wake of Hamas' victory in the January elections, due to Hamas' refusal to recognize Israel, renounce violence or abide by previously signed peace deals.

Livni told Rice during the meeting that the weapons embargo on Hezbollah must be enforced.

Prime Minister Ehud Olmert on Wednesday rejected Palestinian Authority Chairman Mahmoud Abbas' request to release Palestinian prisoners prior to a meeting between the two, saying he would not authorize such a release so long as Shalit remains in captivity.

"With all my desire to help, I will not agree to release Palestinian prisoners before Gilad Shalit is returned to Israel," Olmert told Rice, who passed on Abbas' request during her meeting with the prime minister late Wednesday.

"Such a [prisoner] release would only cause Hamas to increase its demands in exchange for Shalit's release," said Olmert.

Olmert told Rice that Israel will however help Abbas "create a better environment" and return to peacemaking.

Rice had asked Olmert to take steps aimed at strengthening Abbas during their meeting at the prime minister's residence in Jerusalem.

As a part of this effort, the prime minister told Rice that Israel would soon open the Karni commercial crossing into the Gaza Strip, as well as the Rafah crossing between the Gaza Strip and Egypt, for the month-long Muslim holiday of Ramadan.

Rice said Wednesday that the United States wants to help make practical improvements in the Palestinians' daily lives, as violence, deprivation and political chaos are reaching threatening levels in the PA. The secretary of state said the U.S. is "very concerned" about the plight of the Palestinians.

Rice is putting mild pressure on Israel to loosen what Palestinians claim is a blockade of the West Bank and Gaza Strip. These territories are not economically viable without extensive trade across their borders with both Israel and - for Gaza - Egypt, and without Palestinians being able to leave daily for jobs elsewhere.

Rice met Abbas in Ramallah on Wednesday and held talks on the crisis in the PA and how the U.S. could bolster the chairman's position.

Throughout her visit in the region this week, Rice has emphasized her intention to rally moderate elements in the Middle East, and Abbas, she said, is one of these.

"The Palestinians need a government that can provide for their needs and meet the conditions of the Quartet," she said, referring to the international community's conditions for recognizing the Palestinian government. These require the PA government to recognize Israel, relinquish violence and accept agreements previously signed by the PLO (Palestine Liberation Organization). Since its election to power in January, Hamas has refused to meet these conditions, and the PA has suffered a severe economic crisis as a result of the consequent international aid cutoff.

At a joint press conference in Ramallah with Abbas, Rice expressed her sorrow over the fact that much of the Palestinian population lacked basic supplies for the holiday month of Ramadan.

"I promised Chairman Abbas to double our efforts to improve the living conditions of Palestinians," she said.

Rice also promised to pass on to Olmert a Palestinian request that Israel resume transferring the taxes it collects on the PA's behalf - something it stopped doing following Hamas's election - open the border crossings and end settlement expansion.

Rice's visit was coolly received by Hamas leaders Wednesday. PA Prime Minister Ismail Haniyeh said the secretary's visit was meant to serve Israel's interests and to "categorize the states of the region," a reference to the Bush administration's tendency to distinguish between moderates and extremists in the Middle East.

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